a bank's capacity to acquire immediately available funds at a reasonable price is ______? - ANS liquidity
What are the three ways in which a bank can acquire liquidity? - ANS 1. selling assets 2. new borrowings or 3. new stock issue
Assets that can be easily and quickly conver...
a bank's capacity to acquire immediately available funds at a reasonable price is ______? -
ANS liquidity
What are the three ways in which a bank can acquire liquidity? - ANS 1. selling assets 2.
new borrowings or 3. new stock issue
Assets that can be easily and quickly converted to cash with minimal loss are ___? - ANS
liquid assets
What are the four basic types of cash assets for a bank? - ANS 1. Vault cash 2. Demand
Deposit Balances held at Fed Reserve 3. Demand Deposits held at financial institutions 4. Cash
items in process of collection (CIPC)
What is the objective is regards to cash? - ANS Because cash represents a significant
opportunity cost for financial institutions (earn little interest), the objective is to minimize cash
and only hold what is required by law or for operational needs. Summed up, banks want to hold
as few cash assets as possible without creating problems from deposit outflows
T/F Cash assets satisfy bank's liquidity needs and cover unanticipated cash requirements? -
ANS False, they do not
Name the four reasons why banks hold cash? - ANS 1. Meet customer's regular
transaction needs 2. Meet legal reserve requirements 3. Assist in check-payment system 4.
Purchase corresponding banking services.
What makes raising funds through borrowing attractive for a bank? - ANS It is quick and
prices are predictable
Using non-core funding sources adds what kind of risk? - ANS Liquidity risk
What are the significant risk in holding too little cash? - ANS 1. potential liquidity risks 2.
increased borrowing costs
What is the purpose of required reserves? - ANS to enable Federal Reserve to control the
nation's money supply
, Sale or purchasing of U.S. government securities in the open market and the Fed's most flexible
means of carrying out policy objectives - ANS Open Market Operations
Occurs when banks borrow directly from the Feds - ANS Discount Window borrowing
Changes in the ______ impact the amount that banks can lend - ANS reserve requirement
What are the 3 distinct monetary policy tools that the Fed's have? - ANS 1. Open Market
Operations 2. Discount Window Borrowing 3. Reserve Requirement
A required reserve ratio of 10% means that a bank with a $100 in demand deposits must hold
_____ in required reserves? - ANS $10
If the required reserve INCREASES, the amount a bank can lend _____? - ANS decreases
If the required reserve DECREASES, the amount a bank can lend _____? - ANS increases
What are the 3 elements of required reserves? - ANS 1. dollar magnitude of base liabilities
(net transaction accounts) 2. Required Reserve Fraction 3. dollar magnitude of qualifying cash
assets.
System of relationship in which the corresponding bank (upstream correspondent) sells services
to the respondent bank (downstream correspondent). - ANS Correspondent Banking
Services
Why are correspondent banking services usually needed for a respondent bank? - ANS
Services are too expensive to provide independently or can not be provided due to regulatory
constraint.
The predominant services provided in a correspondent banking services fall into which 3
categories? - ANS 1. check clearing and related 2. Investment services 3. credit related
services.
Checks in process of collection are referred to a ____? - ANS float
The more liquid a bank is the lower/higher it's ROA and ROE? - ANS Lower
Why do large holdings of cash decrease profits for a bank? - ANS because the opportunity
loss of interest income
Which typically carry larger yields? ST securities or LT securities? - ANS Long term which
mean they are less liquid.
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